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Private equity firms are increasingly exploring opportunities to invest in India’s shopping malls as such retail assets can be listed under Real Estate Investment Trust (REIT) portfolios. GIC, Blackstone, Canadian Pension Plan Investment Board (CPPIB) and Xander fund-promoted Virtuous Retail are among those looking to expand their retail footprint, especially after India eased the rules on REITs.

“Like office market, shopping centers offer great opportunity for consolidation in India for value enhancement by leveraging management expertise and re-positioning shopping centers. The size of the market is limited and spreads across tier 1-3 cities; first mover will have strategic advantage,” said Sanjay Dutt, the chief executive of India operations at Ascendas-Singbridge, a Singapore-headquartered urban and business space solutions company.

Under the rules unveiled recently by the Securities and Exchange Board of India (Sebi), REITs are allowed to invest in under construction assets to hold up to 20% stake, doubling the previous cap.

This will allow for more portfolios to be listed. The regulator also allowed REITs to invest in two-level special purpose vehicle structure through holding companies (holdcos), subject to sufficient shareholding in the holdco and the underlying SPV and other safeguards.

Apart from listing through REITs, large funds are also diversifying into retail due to shortage of good quality office space in top cities. “There is a significant interest in rental income generating properties (core assets) from several blue chip institutional investors who have raised or allocated capital for this purpose. Retail is a good diversification (from office assets) as there is now sufficient operating track record for major malls across key cities in India,” said Gaurav Kumar, managing director, capital markets, CBRE South Asia.

According to real estate consultant Cushman & Wakefield, the first half of 2016 witnessed the highest annual PE investments in retail with more than Rs 3,350 crore being invested, compared with just Rs 250 crore in the same period last year and the highest since 2008. The share of retail sector assets in cumulative PE investments in India has increased to 18% in H1 2016 from 2% a year earlier.

“The Indian retail market appears to have bottomed out from its slack and is expected to grow in the coming years. Factors such as positive economic outlook and large market potential continue to attract retailers to India,” said Anshul Jain, the India managing director at Cushman & Wakefield. Some of the large transactions concluded in the first two quarters of 2016 included Singapore based GIC investing Rs 1,000 crore in Sheth Developers’ Viviana mall in Thane, the Blackstone Group buying L&T’s Seawoods Grand Central in Navi Mumbai for Rs 1,450 crore and Nambi Buildwell’s Rs 904 crore acquisition of DLF Place Saket mall.

Mall developer Phoenix group is in talks with CPPIB to form a $300 million joint platform to buy land and develop malls across major cities. They plan to bring Phoenix’s mall projects too to the platform and are in the process to buy out investors in some of the existing properties.

“Occupancy levels in malls are inching upward with steady rentals indicating that consumption is on the rise. With enhanced macro factors, retail is bound to perform better and this provides income flow to malls. Our interest in this segment is increasing due to these factors and we will continue to look for more opportunities,” said a senior executive at an international fund, who did not want to be named.

According to Cushman & Wakefield, new mall supply increased to 4.8 million sq ft in the first half of 2016 from a mere 0.2 msf in H12015. This is the highest half-yearly supply in five years. Total new supply of about 13 msf across top eight cities is scheduled for completion by the end of 2018. More than 46% of this upcoming supply is located in Bengaluru and Chennai. With rising demand and declining new supply, the vacancy rates are expected to taper over the next one to two years, creating a more balanced equation between demand and supply.

The Northern Peripheral Road (NPR), commonly known as Dwarka Expressway, is a 150-metrewide and 18km-long road which will connect Dwarka in Delhi with Kherki Dhaula on the National Highway 8 (NH-8) in Gurgaon.

The project was commissioned in 2007 and while most of the project (14km out of18 km) has been completed, it has not become operational as some key patches of the alignment are stuck in litigation.

The future of the corridor is linked to NPR becoming operational, as it presently lacks acceptable level of connectivity.

We present below the key points which summarize the present scenario with respect to NPR and also highlight the key challenges holding up the completion of the road.

Ministry for road transport, highways and shipping has recently announced the granting of National Highway status to NPR. As and when this actually happens, the land acquisition, construction and management of the road will be undertaken by the National Highways Authority of India (NHAI). This is expected to speed up clearance of pending hurdles. NHAI is now undertaking a Detailed Project Report (DPR) of the expressway. However, the timeline for the final notification and takeover by NHAI are not clear at present.

HUDA is planning to make 13.5km stretch of Dwarka Expressway operational soon. This stretch is free of litigation and most of the work has been completed. It will connect to NH-8 at Kherki Dhaula through an underpass or a flyover. This will provide much required connectivity between sectors and other areas of Gurgaon through NH-8, as well as the existing access roads.

The Haryana Urban Development Authority (HUDA) reached a settlement with residents in New Palam Vihar and Kheri Dhaula whose homes were to be acquired for implementation of the NPR. The litigation had been holding up road construction activity in Sector 110, towards Delhi and Kherki Dhaula, near NH-8. As part of the settlement plan, HUDA is to allot alternative plots to around 700 families in Sectors 37C and 110A. However, this process has not yet been completed due to difference of opinion between litigants and HUDA on various aspects of the land allotment plan. Consequently, construction activity on the incomplete stretches has not yet started.

The final 1.3km stretch of Dwarka Expressway which connects it to Delhi actually falls in Delhi and development here is the responsibility of the Delhi Development Authority (DDA). However, DDA has not yet acquired land for implementing this stretch of the road. No clear timelines are available on when this will be completed. Therefore, even if HUDA completes its part of the Dwarka Expressway, connectivity to Delhi might still not be available.

The Railway:

The railway over-bridge (ROB) on the Delhi-Rewari Line is yet to be completed. As the ROB ends towards Sector 99, a factory exists in the alignment of NPR. This factory is yet to be removed for work to be completed.

There are other flyovers planned at some critical junctions along the expressway, but their development timelines are not clear.

Present Residential Development:

Projects in the corridor are in various stages of construction with some having received part Occupation Certificate (OC). However, most of the projects are some time away from completion.HUDA is in the process of laying infrastructure in the corridor. This includes water distribution network, sewerage pipes, electricity and construction of various sector roads and completion of the Dwarka Expressway.

The real estate activity is at a low tide and new project launches have declined sharply as compared to the previous years. There is existing unsold inventory in the market along with options available in the resale segment.

The corridor offers options in apartments, high-end villas, and residential plots. The capital value is higher in sectors close to Delhi. Price in the re-sale market ranges from `4,000-9,000 per sq ft. The average price level in the re-sale market is `5,043 per sq ft.

Compared to the residential markets of Gurgaon, which are to the east of NH-8, the average price level is 30-40% lower.

Properties available in the corridor:

The corridor offers a wide variety of price ranges, although most of the apartments in the region are in the mid-segment. More than 50% of the supply is priced between `40 lakh and `1 crore. This supply is concentrated in the middle of the expressway. The supply costlier than `1 crore is mostly in sectors touching Delhi, and forms a significant 36% of the supply.

A small portion of the supply, amounting to 10% of the total, is priced at less than `40 lakh, and is mostly in sectors at the far end of the corridor, in sectors like 99A, etc. The corridor is relatively new compared to the rest of Gurgaon market, and almost 80% of the supply here is still under construction. This is also partly because of the construction delays faced by the projects here over the last 2-3 years. Overall, the market is tilting heavily towards 3BHKs, which form more than 50% of the total supply, followed by 2BHKs, forming another 30%–4BHKs and above form another one eighth of the corridor’s supply, leaving just 5% for 1BHKs. The corridor provides a moderate range of choices for each bedroom configuration, with prices varying along the length of the corridor, dropping down as one moves west on it, and away from Dwarka’s Sector 21. While the range of flat sizes is large, the majority of configurations of 1-, 2-, 3-, and 4BHKs are around 610, 1,150, 1,870, and 2,800 sq ft respectively.

Sizes and prices of flats available for various room configurations:

Best Sectors to Invest in a Home

Based on rental demand in sectors:

The top sectors by demand are dispersed across the corridor, with Sector 37C, which commands nearly half of the demand for the corridor, being located on the farther end of the corridor from Delhi. The sector is closest to NH-8, among all the sectors on the corridor, and around 3km from Hero Honda Chowk. Sectors 112, 110A, 110, and 109 lie very close to Dwarka’s Sector 21, and benefit from proximity to Delhi, and Udyog Vihar. Sectors 103 and 108 are located in the middle of the corridor, and figure on the list bases the supply of residential apartments in these sectors. The yields vary, ranging between a low of 2.2% and a high of 3.8%.

Based on home-buying demand in sectors:

The home-buying tendency follows closely with the renting tendency on the corridor as all the localities which have high rental demand will give better returns to owners and hence more people will be looking to buy in these localities. Consequently, six out of the Top Ten localities, by consumer searches for buying a house, are in the Top Ten localities by consumer searches for renting a house. Property prices available in the corridor are reasonable and provide potential return on investment.

Best Bedroom Configurations to Buy

Preferred buying and renting options:

As most of the recent demand is driven by end use rather than investment, buyers are looking for bigger apartment types in the market suitable for living.

As a result, the dominant BHK type for both, buying and renting-in is the 3BHKs, followed by 2BHKs. Here, 53% demand distribution is for buying 3BHK units and demand distribution for renting-in is 57% in the corridor.

Noteworthy is the fact that the demand for 4BHKs and above is more than the demand for 1BHKs, a phenomenon rarely seen in the other geographies of the country, and reinforces the preference of bigger apartment sizes by buyers in this market here.

Price Changes and Future Prospects

6 monthly change: -5% Yearly change: -7%

The average price of the Dwarka Expressway corridor has been falling for the last one year, mirroring the weakness in the overall Gurgaon market. The corridor has been witnessing fewer launches, and the sale transaction activity has been slow. Although the sales numbers were expected to pick up after resolution of the dispute for the land under Dwarka Expressway, this did not happen, and the prices have fallen by 5% over the last six months and by 7% over the last one year. However, we believe that prices have hit rock bottom, and will not fall drastically going forward.

Price Movement for Top Localities by Consumer Preference

Various localities in the corridor have given mixed price variations over the last quarter, with three of the two corridors witnessing a fall in the prices. Price changes have varied greatly, and there is no clear trend geographically. Hence, the price variations in the corridor are a result of seasonal trends, while having a downward pressure due to the weakness in the overall property market in the city of Gurgaon.

Why should Consumer Refer to it?

Investment Hotspot report gives a detailed description of forthcoming nodes of the city. The report details the current infrastructure status and future plans of the localities along the stretch. It details the type of properties available along with their configuration; current property prices and their future prospects. The report will help buyers choose the best sectors for investment.

Nearly 9.6 million sq ft Grade A office space was absorbed during the July-September quarter of this year, a report said.

According to a study of nine major metros by property consultant Colliers International, office absorption witnessed sustained momentum, with Grade A absorption totaling 9.6 million sq ft, making it 28.26 million sq ft so far in 2016.

“Although Q3 2016 marked a quarter-on-quarter decrease of 7.6 per cent in gross leasing volume, we expect leasing activity to pick up in the upcoming quarters,” it added.

As per the survey, southern cities dominated the office absorption pie with Bengaluru at the top (25 per cent), Hyderabad (20 per cent) and Chennai (11 per cent), followed by Gurugram (13 per cent), Mumbai and Noida (10 per cent), Pune (8 per cent), Delhi (2 per cent) and Kolkata (1 per cent).

“Vacancies are set to decline in prime commercial corridors on the back of rising demand momentum, especially in Bengaluru, Pune and Hyderabad,” Colliers International’s South Asia Director, Office and Integrated Services George McKay said.

He noted Bengaluru continues to go from strength to strength in terms of office absorption.

“This is good news for owners and developers, but is a challenge for office occupiers in many cases, as they face the prospect of higher rental rates and fewer options to choose from at least in terms of ready supply.

“Land markets in the main cities have become quite active as established and next generation developers are looking to replenish their land banks, to satisfy both existing and new client demand,” he said.

As per Colliers, the growing office demand will outstrip supply in technology sector driven markets such as Pune, Bengaluru, and Hyderabad.

“This should therefore lead to downward pressure on vacancies and an upward pressure on gross office rents in these markets. In contrast, traditional commercial markets such as Mumbai and NCR are likely to remain stable in terms of rents and vacancy due to a stable demand and supply scenario,” McKay said.

According to Surabhi Arora, Senior Associate Director, Research at Colliers International, the improving economic picture provides a favorable background for continued expansion in commercial property markets.

“Nasscom predicted 10-12 per cent annual growth in IT and technology enabled services until 2020 that should help the office market to remain strong in 2017.

“That said, a further impetus to growth should be provided by other macro-economic factors such as declining oil prices and increasing monetary easing facilitated by ongoing moderation in inflation,” she added.

Investors across real estate segments – residential, commercial and land – are rushing into Gurgaon which saw large sales across financing and land acquisitions in excess of $1 billion, double that of 2015.

Last year, Gurgaon market attracted around $500 million in investments as investor were in a wait-and- watch mode towards outlook and an expected recovery.

While land accounted for 42.55 of the total investment pie, followed by refinancing of residential assets at 42.1% and core assets (rented office property) at 15.3% respectively, estimates CBRE South Asia.

“Owing to its cosmopolitan status and conducive environment, Gurgaon continues to evince active interest from real estate funds, local and international developers as well as corporates. It has always been the investment gateway to NCR due to its critical mass in real estate development and existing social infrastructure,” said Gaurav Kumar, managing director of capital markets at CBRE South Asia.

Gurgaon commands a lion’s share of office leasing in the NCR region driving significant institutional interest as well as investment commitments to capture the growth wave of increasing lease rents and high sale prices.

Some of the large transaction in Gurgaon includes M3M acquiring 180 acres of land from Sahara Group for $180 mn for a residential project. Tata Realty and Infrastructure acquired a 25-acre IT SEZ zoned land parcel from M3M abutting Sector 58 near Golf Course Extension for $60mn. Additionally RMZ/QIA purchased a 730,000 sq ft IT Park from BPTP located along the Delhi-Gurgaon expressway in Udyog Vihar for $180mn.

“Gurgaon is the potential market for office spaces in north India and assumes a prominent position in RMZ acquisition strategy. We have already acquired a marquee asset from BPTP which we have christened RMZ Infinity, Gurgaon. We are exploring both greenfield and brownfield developments as a way of expanding our presence in north India, which we hope to take up to at least 5 mn sq ft over the next three years in this Gurgaon micro market of NCR.,” said Arshdeep Sethi, MD -Development of RMZ Corp.

“We foresee constraints on new office supply side in the future, opening up tremendous opportunities to capture significant market share. Even valuations in the recent couple of years, especially in residential, have been depressed. This, combined with the limited number of office players in the market, provides growth opportunities in terms of returns and market share,” he said.

Prominent funds like Piramal Fund Advisors, Xander, JP Morgan, Altico Cpaital, GIC and Blackstone have either invested or are evaluating opportunities in Gurgaon. “We will look at last mile financing for projects in advanced stages of construction and sales. We will also evaluate and fund projects wherein credible corporate houses such as Godrej have tied up, under joint development arrangements, with existing land owners and developers to market and construct projects under their corporate brands,” said Sanjay Grewal, CEO for Altico Capital.

The fund recently invested Rs 50 Cr transaction with Noida based Lotus Greens group for a residential project. It had earlier invested Rs 450 crore for a Sports City project with the builder.

The city also has couple of million dollars transactions in the pipeline with DLF’s rental portfolio of office assets alone estimated to attract over $1-1.3 billion for a 40% stake sale. Ascendas-Singbridge, a leading sustainable urban and business space solutions provider, has also recently announced an investment of $ 400 mn to develop an IT office SEZ in Gurgaon.

“Gurgaon is the focal point of economic growth in NCR and the second largest office market in India with significant investments made by large multinational corporations. With over two decades of experience in India, we will bring our best practices to ITPG and provide best-in-class business space and asset management services in Gurgaon,” said Sanjay Dutt, CEO, India Operations, Ascendas-Singbridge.

Renewed interest from institutional investors has also prompted builders such as Vatika, Tata Realty, Hines and M3M to join hands with strong institutional investors to actively acquire strategic land positions within emerging areas of Gurgaon; a clear indicator of long term dividends from such investments.

“The past few years have been challenging for residential markets with stagnant off-take levels. In such a scenario, renewed interest by institutional investors is explained by several factors including current pricing for housing being at replacement cost levels, thereby providing limited downside risks for investments. Interest rates are at their lowest in the past five years,” said CBRE’s Kumar.

Multiple Chinese developers are evaluating Gurgaon as their first market for investment. Wanda, a prominent Chinese developer acquired 500 acres from the Haryana government for a green field industrial township.

In addition to the healthy investment activity over 12-18 months, the pipeline of future investments is even stronger. Institutional investors are bullish on the long term outlook with commercial office markets in overdrive and emerging areas of Gurgaon offering excellent residential development opportunities.

The demand for commercial real estate across the country is getting stronger and is witnessing a sustained momentum. The office space absorption across top 9 property markets has seen a sustained growth with total 28.3 million sq ft picked up during the first nine months of 2016, showed a Colliers International report.

Last year, commercial real estate in India registered a record absorption, and given the current momentum, this year is also headed in the same direction.

“The key office markets across India, especially in the south, continue to go from strength to strength in terms of office absorption, and with rents increasing significantly compared to prior years in certain micro markets. This is good news for owners and developers, but a challenge for office occupiers in many cases, as they face the prospect of higher rental rates and fewer options to choose from at least in terms of ready supply,” said George McKay, South Asia Director, Office & Integrated Services at Colliers International.

Colliers expects the leasing activity to pick up in the upcoming quarters and vacancies to decline in primecommercial corridors on the back of rising demand momentum, especially in Bengaluru, Pune and Hyderabad.

“Demand for commercial real estate has been increasing over the recent quarters as corporate entities consolidate and expand operations following a positive economic scenario. Demand for commercial real estate has been on the upswing across markets and we are experiencing it in our ongoing township projects in Panvel, Chennai and commercial tower in GIFT city near Ahmedabad,” said Niranjan Hiranandani, CMD, Hiranandani Communities.

“As I see it, business growth in India has been all about adopting global best practices, and I expect demand for commercial realty to keep growing through 2016 and 2017,” he said.

Expansion strategies by occupiers in ecommerce, healthcare and technology space are expected to increase in the overall occupancy levels. The growing office demand is expected to outstrip supply in technology sector driven markets such as Pune, Bengaluru, and Hyderabad. This should, therefore, lead to downward pressure on vacancies and an upward pressure on gross office rents in these markets, the report said. In contrast, traditional commercialmarkets such as Mumbai and NCR are likely to remain stable in terms of rents and vacancy due to a stable demand and supply scenario.

According to McKay of Colliers International, the demand for commercial spaces has resulted in land markets in the main cities becoming active as established and next generation developers are looking to replenish their land reserves to satisfy both existing and new client demand. During the first nine months of the year, occupier demand has focused on quality products in preferred micro markets in most of the cities, whereas startup and small-size companies showed an inclination towards serviced and co-working space.

Also, there has been an increased demand for leased out commercial assets in the market as indicated by a recent deal by Brookfield Asset Management to buy 4.5 million sq ft grade-A office and retail portfolio of Hiranandani Group in Mumbai’s Powai suburb for $1billion.